HS2 Six-monthly Report to Parliament

Tuesday 13th October 2020 Written Statements

[The Minister of State, Department for Transport (Andrew Stephenson)]

This Government have committed to provide an update to Parliament every six months on the progress of High Speed 2 (HS2), of which this is the first. This report covers data reported by HS2 Ltd to the end of August 2020.1 have placed a copy of the report in the Libraries of both Houses.

Overview

After careful consideration of the independent Oakervee review and wider evidence, including the National Audit Office’s (NAO’s) progress update, the Prime Minister confirmed to Parliament in February 2020 that the Government would proceed with HS2. The Government intend HS2 to become the spine of the country’s transport network, bringing our biggest cities closer together, boosting productivity and rebalancing the economy and opportunity for people across the country. It will also help meet our commitment to bring all greenhouse gas emissions to net zero by 2050, by providing a better alternative to regional air and road travel.

In taking this decision, the Prime Minister and Secretary of State for Transport made clear the importance of a tighter grip by the Government on the delivery of the project and of the need for full transparency. That is why we have consulted the chairs of the Public Accounts Committee and Transport Select Committee in providing this report to Parliament, and I intend it to provide clear information about our progress.

In April, the full business case for the first phase of the scheme between the west midlands and London, HS2 phase 1, was approved with an increased budget and revised delivery into service date. This permitted HS2 Ltd’s main works civils contractors to begin construction of phase 1. I was delighted to see the Prime Minister mark this significant milestone officially by visiting Birmingham interchange a few weeks ago.

Authorising the main works signalled the Government’s commitment to invest in our economic recovery in response to covid. HS2 is central to our plans to build back better and will stimulate economic growth and rebalance opportunity across this country in the short, medium and long term.

HS2 phase 1 is just the first step in levelling-up our great economic regions and better connecting the north, the midlands and London. That is why we are progressing legislation to deliver phase 2a to provide a high speed line from the west midlands to Crewe, where trains will continue further north via the west coast main line. The phase 2a Bill is currently in the House of Lords. The Select Committee has finished hearing petitions and we await its report.

To deliver HS2 phase 2b and Northern Powerhouse Rail more effectively alongside other transport schemes, an integrated plan for rail in the north and the midlands is being developed. This will be informed by an assessment from the National Infrastructure Commission, expected at the end of 2020. The integrated rail plan will set out the form, scope and phasing of the phase 2b route. It will also inform decisions on how to improve links to and from Scotland to strengthen the connectivity of the Union.

Achievements in this first reporting period include:

Getting on with delivery by approving the phase 1 full business case and authorising the start of construction, supporting the industry and wider economy as part of the covid response. Indeed, HS2 Ltd and its supply chain supports over 13,000 jobs, including over 400 apprenticeships. At peak construction, this will increase to 30,000 jobs.

Getting a stronger grip on delivery to time and budget by establishing the ministerial task force for phases 1 and 2a, chaired by the Secretary of State for Transport, and attended by the Financial Secretary to the Treasury, the Minister of State at the Cabinet Office, the Minister of State for Regional Growth and Local Government and myself. We have also strengthened the board of HS2 Ltd by appointing three additional non-executive directors.

Putting the people and communities impacted by the scheme at the centre of our work by reviewing the land and property acquisition programme, the approach to compensation and, importantly, how HS2 Ltd supports and engages with people along the route. The review will be published shortly.

Revisiting how best to deliver Euston station as recommended in the Oakervee review, with the aim of providing an improved design and better delivery strategy. This includes revised governance providing closer collaboration between HS2 Ltd and Network Rail, through the new Euston partnership board chaired by Sir Peter Hendy.

Developing the integrated rail plan for the north and midlands. This work focuses on reducing overall costs, identifying the correct schemes and sequencing to improve rail services and to determine how best to improve rail connectivity with Scotland. A separate ministerial task force is also overseeing preparation of the integrated rail plan.

Continuing the preparation of legislation for the phase 2b western leg into Manchester, reflecting the findings in the Oakervee review that phase 2b should be delivered in smaller sections with legislation brought forward as it is ready. This includes the design refinement consultation launched on 7 October. The integrated rail plan will set out the form, scope and phasing of the phase 2b route, across the western and eastern legs, and the Government will therefore consider responses to this consultation alongside the outcomes of the integrated rail plan.

Setting out our intent to establish enhanced reporting arrangements to demonstrate how HS2 Ltd is meeting the Government’s environmental priorities.

Programme update on affordability, schedule and delivery affordability

Earlier this year, the Government reset the funding regime for HS2, including a target cost and funding envelope for phase 1 and revised estimates for the wider scheme. The total funding envelope for phase 1 was set at £44.6 billion (2019 prices) and the estimated cost for completing the full network was revised to a range of £72 billion to £98 billion.

For phase 1, including Euston, HS2 Ltd projects an outturn cost at £40.3 billion (2019 prices) which is at the level of its target cost. This projection remains uncertain at this early stage in the project’s lifecycle, as with all major infrastructure projects, and does not yet reflect the impact of covid. HS2 Ltd is expected to provide its estimate of the covid impact within the next six months. Any cost changes will be contained within the funding envelope using the contingency already assigned.

Of the £40.3 billion, £9.6 billion has been spent to date, a further £11.5 billion is contracted, and £13.9 billion is yet to be contracted and remains an HS2 Ltd estimate. The target cost also includes available HS2 Ltd delegated contingency of £5.3 billion for managing the risk and uncertainty that are an inherent part of delivering major projects. HS2 Ltd is currently reporting cost pressures of £0.8 billion. If not successfully remediated, these pressures will be drawn against the company’s delegated contingency. These pressures are driven by:

Enabling works to prepare the line of route for construction. These have been underway since 2017 and in some areas have encountered more significant challenges than anticipated, such as the need to safely remove more asbestos than expected, resulting in increased scope and duration. These additional costs are likely to be in the order of £0.4 billion according to HS2 Ltd.

Euston station, where further development of the baseline scheme has identified a significant cost pressure, which HS2 Ltd is currently reporting as in the order of £0.4 billion. Further work is ongoing to validate these initial estimates and this could identify further pressure. As this remains at the design stage, work is under way to consider opportunities, efficiencies and scope reductions in order to redress these pressures and we will report further on this in the next report.

The total funding envelope for phase 1 remains at £44.6 billion (2019 prices). This includes further available contingency of £4.3 billion over and above that delegated to HS2 Ltd, which is retained by the Department for Transport and Her Majesty’s Treasury. I am determined to carefully scrutinise the use of contingency to ensure that it is sufficient to cover issues that may emerge later in the project and will provide updates to Parliament through these reports.

The overall phase 2a cost is currently estimated as in the range of £5-7 billion (2019 prices). This remains in line with the estimate set out at the time of the Prime Minister’s announcement on 11 February and the NAO update of January 2020. Firmer ranges and a target cost will be confirmed, subject to the scheme being approved by Parliament and based on the scope and undertakings in the Act.

Updated cost estimates will be provided for the phase 2b links to Manchester and Leeds once the integrated rail plan is concluded. At this stage, ongoing design work suggests some further pressure on the most recent estimates but this depends in part on decisions on the route and sequencing, as well as decisions about the appropriate level of contingency to provide at this stage. We will provide further information as this work matures including as part of preparing legislation for the HS2 route from Crewe into Manchester.

Schedule

On phase 1, the delivery into service (DIS) range for initial services from Old Oak Common to Birmingham Curzon Street remains 2029 to 2033. HS2 Ltd continues to predict that it will provide services within this range but notes some pressures on the earliest date from covid impacts and delayed handovers from enabling works, which it is seeking to mitigate. Schedule estimates will be more reliable once the main works are fully mobilised next summer and once the rail systems elements have been contracted.

The overall response to covid by HS2 Ltd and its construction partners has been positive with the rapid implementation of safe working practices to protect the public and workers and the reopening of the majority of sites after a safety review. However, some works have been delayed and at some sites covid-safe practices have necessarily reduced productivity to a limited degree.

The range for initial opening of services from Euston remains 2031-2036, subject to further work on the study of design and delivery options.

Schedule ranges for phases 2a and 2b will be established once their scopes are finalised.

Delivery progress

The main works civils contractors are currently taking possession of sites along the line of route on phase 1 and mobilising their workforces and equipment, including the delivery of tunnel boring machines. Significant works are already under way at several sites.

The three other phase 1 stations, Birmingham Curzon Street, Birmingham interchange and Old Oak Common, have now received schedule 17 planning consents. Procurement is under way for the construction of Curzon Street and interchange stations and design refinement is underway at Old Oak Common ahead of approving the start of construction.

The procurement of rail systems packages for track, catenary, power, control and communications systems has begun. Contracts for two packages, slab track and cross passage doors, have been awarded. The procurement of the rolling stock supplier continues and will be awarded in the summer of next year.

The timeline to achieve Royal Assent of the phase 2a Bill by the end of the year is challenging, but remains feasible subject to Parliament’s will.

As noted above, preparations are now under way for a hybrid Bill for the western leg of phase 2b (Crewe to Manchester). A consultation on design refinements to support future use of HS2 infrastructure as part of Northern Powerhouse Rail was launched on 7 October. At the same time a route wide update, decisions on changes previously consulted in 2019, and revised property safeguarding were published for the western leg.

Community and environmental impact

Since my appointment as Minister for HS2, I have sought to increase the focus on managing HS2’s impact on communities along the line of route and on the natural environment.

Securing the land and property needed to construct the line of route across all phases is vital to the programme’s success and is often the first impact that we have on line of route communities. A range of statutory and non-statutory property compensation schemes are available that seek to compensate affected parties fairly while protecting the public purse.

Our policy is to provide fair compensation for those directly and indirectly impacted but the process and disputes for claims can inevitably be traumatic for some. I therefore commissioned a detailed review of the acquisition and compensation process to ensure that there is a renewed focus on those who are being impacted by the new railway. The report will be published shortly and we will move to consult where appropriate on the proposed reforms.

Some £3.6 billion has now been spent acquiring land and property and in the order of 1,250 properties have been acquired to date across the three phases of HS2. The majority of this is from phase 1 where £3.3 billion has been spent to date.

I want to make sure that HS2 Ltd and its contractors are as sensitive as possible to the impact of construction on communities where impacts will unfortunately be unavoidable. HS2 Ltd needs to ensure that communities are properly informed and consulted and that the impacts are minimised to the extent that is reasonable. I intend to engage closely with Members of Parliament and the communities that they represent and ensure HS2 Ltd is meeting the terms of its planning consents.

I also intend to increase our efforts to limit the impact of HS2 on the natural environment and to ensure its construction and operation is as low carbon as possible.

In the coming months, HS2 Ltd will establish a new environmental sustainability committee (as a sub- committee of the HS2 Ltd board), led by its Chair, Allan Cook. This committee will be charged with strengthening environmental sustainability reporting including the development and publication of an environmental sustainability report. HS2 Ltd intends to publish the first report next year.

HS2 Ltd has been working with Natural England over the summer to enhance plans to support delivery of the route wide, “no net loss to biodiversity” target. Following Royal Assent of the phase 2a Bill, HS2 Ltd will continue to explore opportunities to enhance its existing no net loss objective for that phase of the programme. It will identify and implement appropriate opportunities, where it is reasonably practicable, to move towards net gains in biodiversity. This will be supported by a £2 million biodiversity fund.

HS2 Ltd is also working in partnership with local communities to create new woodlands, diverse habitats and community green spaces beyond the construction boundary. Funding provided through the phase 1 £40 million community and environment fund and the business and local economy fund has seen over 126 projects awarded funding of over £7.7 million.

Forward look

For phase 1, the focus for the coming year will see the continued mobilisation of the phase 1 construction programme and commencement of civil engineering and tunnelling activities alongside further contract awards for stations, rolling stock and systems. I will continue to focus on the control of schedule and cost, while implementing the reforms on land and property acquisition, managing the impact of construction on local communities, and improving environmental performance and reporting.

Subject to Parliament’s will, the phase 2a Bill will continue through its final legislative stages to secure authority for construction of the route to Crewe and northern destinations via the west coast main line.

We will continue to define the scope and scheme for phase 2b as part of the work to conclude the integrated rail plan and to prepare a hybrid Bill for the western leg from Crewe to Manchester.

I will continue to engage closely with Members of Parliament and will provide my next report to Parliament in April 2021.

Annex A: Period Financial Report ¹

Forecast costs by phase